Closing Recap

Tuesday, August 01, 2023

Index	Up/Down	%	Last
DJ Industrials	70.89	0.20%	35,630
S&P 500	-12.24	0.27%	4,576
Nasdaq	-62.11	0.43%	14,283
Russell 2000	-9.30	0.46%	1,993

 

 

 

 

 

 

 

 

 

U.S. stocks closed in the red, but not far off the best levels of the day as stocks clawed back to finish with modest losses as investors await another heavy dose of earnings. Stocks averages have been in a tight range the last few days, with the S&P 500 (SPX) flirting around the 4,600 level, but there have been underlying big movers following earnings. Industrials outperformed today (CAT, ETN) after earnings, while technology shares managed gains into AMD earnings tonight in the chip sector. Treasury yields were a big story today, with all coupon rates currently 4% or better after another round of strong economic data in the US (though weak manufacturing readings in China and Europe hurt sentiment early). Given the better backdrop of the US economy, the chances of a “soft” landing or no landing at this point has increased, but also raises prospect that the Fed may not be done with interest rate hikes. August is generally a weaker month: note in the past 24 years DJIA has risen just 32.0% (up 8, down 17) of the time on the first trading day of August. Several sizable gains in those up years, have mitigated the average first day percent change, but the median performance is a more sizable loss. Over the past 12 years, DJIA and S&P 500 have both declined 9 times. So how much longer can consumers deal with impact or higher rates? Note the average interest rate on a new car loan just hit a record 7.2% while the average interest rate on a used car loan is now roughly 11.0%. The average new car payment in the US is now $750 and the average new mortgage payment is $2,850. This means that an American who wants a new car and house is paying $3,600/month or $43,200/year AFTER a 20% down payment. That is 62% of the median household income in the US.

 

Economic Data

·     U.S. June JOLTs Job Openings reported at 9.582M vs. est. 9.610M and below prior 9.824M.

·     S&P Global July manufacturing PMI at 49 vs 46.3 prior.

·     Construction Spending for June rises +0.5% vs. consensus +0.6% and vs. May +1.1% as private construction spending +0.5%, public spending +0.3%.

·     ISM Manufacturing PMI at 46.4 in July vs. 46.0 in June and vs. est. 46.8; prices paid index 42.6 in July (consensus 42.8) vs 41.8 in June, new orders index 47.3 in July vs 45.6 in June, and employment index 44.4 in July (consensus 48.0) vs 48.1 in June.

 

Commodities

·     WTI Crude September futures settle at $81.37 a barrel, down 43 cents, 0.53%, while Brent Crude futures settle at $84.91/bbl, down 52 cents, 0.61%. Gold falls -$30.40 or 1.5% to settle at $1,978.80 an ounce as the U.S. dollar and Treasury yields advanced, while silver prices fell by $0.65, or 2.6%, to end at $24.33 per ounce. The US dollar bounced after the latest data in the U.S. manufacturing sector showed it contracted for the ninth consecutive month in July, while employment openings in the U.S. edged lower in June.

 

Currencies & Treasuries

·     Treasuries were pressured following data that showed the US economy remains strong as now every coupon rate is above 4% as the 10-yr yield rose 9-bps to 4.04%. It has closed over 4% only once since early July while the 2-year was up fractionally at 4.91%. The bond market awaits Wednesday’s refunding announcement that should show debt managers increasing auction supplies for the first time in years. With the economy strong, and inflation showing continued signs of decelerating, but still above the Fed’s tolerated range, the chance of further rate hikes at the September meeting remains on the table.

 

 

Macro	Up/Down	Last
WTI Crude	-0.43	81.37
Brent	-0.52	84.91
Gold	-30.40	1,978.80
EUR/USD	-0.0026	1.0967
JPY/USD	1.12	143.40
10-Year Note	0.093	4.047%

 

 

Sector News Breakdown

Consumer

Autos:

·     LI said it delivered 34,134 cars in July, a record for the company, up from 32,575 delivered in June, and up from 10,422 delivered in July 2022.

·     NKLA scores big win in hydrogen station regulatory grant funding with an additional $16.3M for a total of $58.2M in the last 30 days

·     NIO reported July deliveries that more than doubled from a year ago; delivered 20,462 vehicles in July, up 103.6% from the 10,052 EVs delivered in the same month a year ago, and up 91.1% from the 10,707 EVs delivered in June.

·     RIVN was downgraded from Overweight to Neutral at Cantor but raised price tgt to $29 based on valuation given the recent outperformance in the share price, and on increased competition from TSLA, as well as competition from GM .

·     XPEV said it delivered 11,008 cars in July, up from 8,620 delivered in June and down from 11,524 delivered in July 2022. XPeng has delivered 52,443 units in 2023, down from 80,507 delivered in the first seven months of 2022.

·     Monthly Auto Sales: Mazda North American operations: reported total July sales of 30,629 vehicles, increase of 30.9% compared to July 2022; Toyota N.A. reported July 2023 U.S. sales of 191,684 vehicles, up 8.1% on a volume basis. American Honda July total sales 111,762 units, up 56.9%.

 

Consumer Staples & Restaurants:

·     In tobacco: MO reports Q2 EPS $1.31 vs consensus $1.30 and revenue net of excise taxes $5.44B vs consensus $5.43B; smokeable volume (8.3%) vs consensus (9.2%); reaffirms FY EPS.

·     In Beverages: TAP mixed results as Q2 EPS $1.78 tops ests. $1.59 but revenue $3.27B missed the $3.29B estimate, failing to capitalize on the Bud light marketing fiasco.

·     In Restaurants: BLMN Q2 EPS $0.74 vs consensus $0.64 and revenue $1.15B vs consensus $1.15B as US comps +0.8% vs consensus +0.6% – Outback +0.6%, Carrabba’s +3.5%, Bonefish +0.5%; reaffirms FY financial targets; YUMC reported lower-than-expected Q2 revenue and seemed to temper investors’ expectations for its third quarter, sending shares lower.

·     In Beauty: EL downgraded from Buy to Neutral at Citigroup saying they see increasing risks to the recovery path for the Asian TR business over the next 6-12 months. CITI had previously highlighted in its negative catalyst watch its concern with initial FY’24 guidance, but it now sees more risk to the recovery path in 2H24.

·     In Food: SYY Q4 results mixed as EPS and Ebitda mostly in-line while sales missed ests $19.7B vs. est. $19.95B and guided year EPS below views $4.20-$4.40 vs. est. $4.48.

Retailers:

·     Barclay’s upgraded shares of apparel retailer AEO to Overweight from Equal-Weight, price target $18 from $11, BBWI to Overweight from Equal-Weight, price target $45 from $41, GPS to Overweight from Equal-Weight, price target $13 from $9, and TPR to Overweight from Equal-Weight, price target $58 from $47.

 

Leisure, Gaming & Lodging:

·     In ride hailing: UBER posted its first-ever quarterly operating profit and provided Q3 guidance ahead of expectations (sees Ebitda $975M-$1.025B vs. est. $925.9M); followed Q2 rev miss while trips across Uber’s markets during the quarter grew 22% to 2.3B – shares fell after early spike.

·     Hotels MAR raises FY23 adjusted EPS view to $8.36-$8.65 from $7.97-$8.42 after Q2 beat and raised worldwide RevPAR growth to 12% to 14% from 10% to 13%.

·     In Casinos & Gaming: Macau says July gambling revenue up 4082.9% from a year earlier to 16.7 bln patacas; IGT reported Q2 EBITDA $443M vs consensus $419.6M and revenue $1.06B vs consensus $1.03B; EBITDA margin 42% vs consensus 40.7%; GDEN generated $58M of EBITDA in 2Q23, -10% vs. consensus on the back of continued renovation disruption at the STRAT (EBITDA -40% YoY) and inflationary wage pressure while EBITDA declined 15% in 1H23.

·     In Theme Parks: Citigroup lowered estimates for theme parks mostly below Street for Q2, 2023 saying the most recent round of foot traffic analysis has yielded mixed news headed into 2Q earnings; SEAS reported prelim Q2 revs about $494M-$497M vs. est. $517.6M as attendance seen about 6.10M, vs. est. 6.35M citing adverse weather.

·     In cruise lines: NCLH Q2 results topped ests, but forecasts Q3 profit below estimates (EPS $0.70 vs. est. $0.79) as higher fuel costs reverse its gains from pent-up demand for cruise bookings and raised ticket prices; Q2 operating expenses were up 29% at $138.4M. Shares of cruise lines RCL, CCL fell in sympathy but noteworthy the sector has had a great run this year.

 

Homebuilders, Building Products, Home Furnishing:

·     TREX reported 2Q23 revenues and adjusted EBITDA above expectations as +5% y/y sell-through in the quarter was better than the down LSD expectation. Gross margins were notably stronger, up 220 bps y/y to 43.9%, and now expects flat sell-through trends for the full year, up from its MSD decline expectation last quarter.

·     ZG and RDFN announced a partnership Tuesday, as the real estate information and services companies work together to help home builders connect with home buyers.

 

Energy

·     BP said Q2 profit dropped almost 70% y/y as lower commodity prices and weak refining margins hit results; profit missed market expectations and fell more sharply compared with roughly 50% declines recorded by bigger rivals; BP trimmed its quarterly share buyback to $1.5 billion from $1.75 billion announced last quarter while modestly boosting its dividend.

·     CPE was added and SHEL, CRC, RRC removed from the energy best ideas list at RBC Capital.

·     CVX was added to Conviction List at Goldman Sachs (after upgrading yesterday) and removed BKR from the list.

·     CRK reported a 2Q23 miss on lower volumes and higher operating expenses and sees Q3 volumes that were ~5% below consensus at the midpoint, while FY23 volumes are anticipated at the low-end of the prior range; D&C capex guidance was maintained.

·     FANG beat 2Q production by 3% with in line EBITDAX though CAPEX was ~2% above consensus owing to faster drilling times and midstream spend and FY23 oil guidance hiked 1% along with CAPEX but 2024 CAPEX looks to be ~5% lower on favorable costs.

·     VNOM Q2 beat on production and adj EBITDA, and a higher allocation of FCF to the variable component of the quarterly distribution than Keybanc said they expected.

·     In MLPs/Pipelines: EPD Q2 EBITDA / cash flow a light on lower NGL pipelines & services revs / margins while maintains capex guide; CEQP Q2 big miss on ebitda, cash flow, and guiding to lower half of ebitda 780-860m ebitda range; MPLX Beat on EBITDA / cash flow; DTM EPS beat, adj ebitda inline while EPS and EBITDA guide inline though Capex guide higher.

·     In refiners: MPC Q2 beat across the board, beating R&M op income & throughput; CVI shares rallied on mixed results, with big headline beat on higher EBITDA however revs inline / touch light.

 

Financials

Banks, Brokers, Asset Managers:

·     GS was upgraded from Underweight to Neutral at Atlantic Equities and raised tgt to $350 from $330 saying despite the weak reported numbers in Q2 – EPS -60% YoY – there were some encouraging signs for Goldman.

·     STT is reducing the fees investors pay for a group of core ETFs, the company announced. The 10 funds hold about $77 billion in assets, according to FactSet. The changes take effect Aug. 1.

·     UFCS shares plunged after issuing a Q2 warning for profit citing elevated catastrophe claims as guided Q2 EPS loss (-$2.27) vs. the expected (-$1.11) loss by analysts.

·     VLY second-quarter profit and revenue fell short of estimates, and Hovde Group analysts downgraded the stock to market perform from outperform.

·     In Payments: GPN Q2 adj revs $2.20B, in-line with consensus on slightly better EPS.

·     In Lending: AAN mixed Q2 as EPS beats but revs miss ($530.4M vs $547.9M) as reiterates FY EPS $1.01-$1.40 vs consensus $1.23 and lowers revenue $2.12B-$2.22B vs prior $2.15B-$2.25B.

 

REITs:

·     AVB Q2 Core FFO beat of 2% vs. consensus that was above the high end of management’s quarterly guidance range and raised its 2023 Core FFO guidance by 1.4% at the midpoint, driven by a 100-bps increase in its same-store revenue growth guidance.

·     BRX Q2 FFO beat of $0.52, topped consensus by $0.02 and increased the midpoint of its FY23 FFO guidance by 0.5% by lifting the low end of the range by $0.02/share.

·     KRG Q2 beat by $0.03 driven by a combination of higher minimum rent growth, lower bad debt expense, and higher than expected lease termination fee income; increased its FY23 FFO guidance 1.5% at the midpoint.

·     VNO Q2 EPS and revs topped consensus as Q2 FFO at 74 topped the 63c est.

 

Healthcare

Biotech & Pharma:

·     Dow components PFE and MRK reported earnings in Pharma:

·     MRK posted better-than-expected Q2 sales and raised its full-year revenue forecast citing strong demand for its two top-selling products Keytruda and Gardasil.

·     PFE reported 2Q results with revenue of $12.73B (vs. $13.4B consensus) and lowered its operational revenue growth guidance to 6%-8% from 7%-9%).

·     EBS was awarded a 10-year Ebola-treatment contract by the US government valued at up to $704M.

·     CVS is culling 5,000 jobs to reduce expenses, with the reductions largely in corporate positions that are non-customer-oriented – WSJ reported.

·     EQRX to be acquired by RVMD in an all-stock transaction; number of shares will be based on an exchange-ratio formula equal to about 7.7 million Revolution shares plus shares equal to $870 million divided by a price that is a 6% discount to the five-day weighted average.

·     INCY 2Q results revs of $955M top $910M est. on Jakafi strength ($682M vs. $645M cons) the driver and EPS beat while raised its Jakafi revenue guidance.

·     TGTX tumbles as missed Q2 sales and profit estimates on lower-than expected sales of MS drug Briumvi; overall sales of $16.07M misses estimates of $17.45M on wider loss.

·     THC delivered a very strong 2Q with solid margin-driven EBITDA outperformance in the hospital segment and a meaningful revenue-driven EBITDA beat in the ASC segment.

·     TYRA said the FDA granted orphan-drug designation to TYRA-300 for the treatment of achondroplasia, which currently has limited therapeutic options.

·     ZBH 2Q EPS and revenue of $1.87B beat and raised its guidance, now expecting revenue of +6.5% to +7% (from +5% to +6%) and EPS of $7.47 to $7.57 (vs. $7.40 to $7.50 prior), but shares fell.

 

Industrials & Materials

Industrials

·     CAT surges as Q2 adj EPS $5.55 tops est. $4.58 on better revs $17.32B vs. est. $16.49B; and said sees 2023 adj operating profit margin close to top end of target range; sees 2H sales, revenue above year-ago levels; sees 2H adj operating profit margin above year-ago levels.

·     ETN was a big winner in the S&P after results and guidance pushed shares higher.

·     ITW slides as Q2 revenue miss overshadows outlook raised guidance.

·     ROK slumps as Q3 EPS of $3.01 misses $3.17 est. and sales $2.24B misses $2.34B while trims upper range of FY23 adj. EPS outlook to $11.7-$12.1 vs prior guidance of $11.5-$12.2.

·     In Transports: airline JBLU cut its 2023 profit view after terminating revenue-sharing deal with AAL to adj profit of $0.05-$0.40 from prior view of $0.70-$1.00 and sees Q3 revenue down 4%-8% vs. est. $2.62B. In rails, CNI downgraded from Buy to Hold at Argus saying recent results have disappointed. In car rental, CAR mixed results as EPS beat and revs missed for Q2.

 

Technology

Hardware & Software movers:

·     ANET shares rise as reported 2Q EPS of $1.58 topping ests $1.44 on revs of $1.46B (above est. $1.38B) though the 2Q23 revenue growth of 38.7% Y/Y reflects a deceleration from the >50% growth achieved in the past three quarters.

·     DV reported a marginally better 2Q and the 3Q guide was ~in-line (left FY23 unchanged).

·     HLIT tumbles after Q2 miss and cuts year EPS outlook to $0.38-$0.52 vs. prior $0.63-$0.74 (est. $0.70) and revs $620M-$660M vs. $723M.

·     ZBRA slides after slashing its FY net sales outlook to down -20-23%Y/Y vs previous guidance of 2-6% decline and guided Q3 adj. EPS below analysts’ consensus forecast.

·     ZI shares slide as reported disappointing 2Q results with 41% adjusted operating margin on revenue of ~$309M (below est. $311M), up 16% y/y, versus 24% y/y last quarter, cRPO of $842M, up 10% y/y, down from 17% last quarter, and billings of $300M up 10% y/y.

 

Semiconductors:

·     AMD the highlight for tonight in semi earnings.

·     LSCC reported strong 2Q results and guided 3Q in line noting it saw strength in industrials including factory automation and robotics, as well as in automotive.

·     MPWR reported in-line 2Q results and 3Q guidance saying the broader environment remains weak and is seeing limited signs of a recovery but did see a modest improvement within its consumer segment; but sees 4Q below consensus.

·     RMBS slides; while 2Q EPS was a beat, 3Q EPS guide miss was primarily due to product revs 19% below street on continued DDR4 inventory digestion (Q3 EPS 15c-21c vs. est. 44c).

·     SYNA announced it has added new products and technologies to its wireless license agreement with Broadcom and extended its original 2020 exclusive rights in certain markets by three years to 2026.